History Says Market Volatility Will Rise Before Election

By Avi Salzman

Barclays analyst Barry Knapp unearthed some statistics this morning that might be worth noting as we all prep for election season. Market volatility, as measured by the CBOE Volatility Index (VIX), tends to spike before an election where the incumbent is viewed as vulnerable.

“A look at S&P 500 index volatility during the past three elections when the incumbent’s chances were tenuous due to a weak, uneven recovery (1976, 1980 and 1992) shows volatility, after hitting a low 10-12 weeks prior to November, rising ~30% through the final stages of the election. A similar move implies an increase in the VIX to roughly 20 from today’s 15.”

To those who follow the VIX, the idea that it could spike is no surprise — it’s been at historically low levels during the market’s recent snoozefest. This of course could simply mean that investors are being incautious, relying on the likelihood of central bank intervention to bolster their confidence. Or it could just be the season — soon everyone will trade in their flip-flops for loafers and heels again.

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